After struggling for a while under the pressure of high interest rates, Republic First Bancorp (Republic First Bancorp) was shut down by the US Federal Deposit Insurance Corporation (FDIC) last Friday, and finally found another regional bank willing to take over: Pennsylvania's Fulton Financial Corporation (FULT.O).

The bank was the first FDIC insurer to go bankrupt in the US this year. The last bank to go bankrupt was Citizens Bank (Citizens Bank) in Sark City, Iowa, in November of last year. With a strong economy, on average, only four to five banks fail each year. The banking sector is often viewed as a barometer of the overall economy, and bank failures may trigger a ripple effect in the financial world.

The Federal Deposit Insurance Corporation (FDIC), which was appointed as the receiver, said on Friday that Fulton Bank (Fulton Bank), a subsidiary of Fulton Finance, will accept almost all of its deposits and purchase all of its assets “to protect savers.” First Republic Bank's 32 branches in New Jersey, Pennsylvania, and New York will reopen as Fulton Bank branches on Saturday or Monday.

First Bank of the Republic was founded in 1988 and is smaller than the medium-sized banks that went out of business last year. As of January 31, 2024, its total assets were approximately US$6 billion and total deposits were US$4 billion. The FDIC estimates that its collapse would cost deposit insurance funds $667 million. Fulton said in a statement that in addition to deposits, Republic First Bank also has about $1.3 billion in loans and other liabilities.

The FDIC was looking for a buyer for First Republic Bank in 2023, but suspended the process after the bank reached an agreement with investors to inject $35 million in cash. The agreement was intended to reassure shareholders of the bank's financial stability, but it broke down earlier this year. The FDIC then restarted the sales process.

Fulton said the deal almost doubled its influence in the Philadelphia market, and the company's total deposit was about US$8.6 billion. Fulton Chairman and CEO Curt Myers (Curt Myers) said: “With this deal, we are delighted to be able to double our business in the region.”

According to market analysis, as the Federal Reserve kept interest rates at a high level for a longer period of time, the asset value of some banks weakened, including First Bank of the Republic. Furthermore, the downturn in the commercial real estate market, especially the office building market, has also raised concerns that savers may flee these financial institutions.

These economic conditions have increased the financial risks of regional and community banks such as First Republic Bank, which have significant exposure to commercial real estate loans. As real estate values declined, it became difficult to refinance loans, leaving banks in a precarious financial position. Furthermore, the pandemic has affected various industries to varying degrees, and has had a broader impact on the economy, creating a difficult business environment for the bank.

However, Janney Montgomery Scott Bank analyst Feddie Strickland (Feddie Strickland) said that the collapse of Republic First Bank is likely to be an isolated incident, and the overall banking industry is stable. “I think small banks are doing well,” Strickland said. “The bankruptcy we saw last year was actually a bank with some business expertise. I think diversity is important.”

Strickland called Fulton Bank, which took over deposits at Republic First Bank, as “the most boring bank,” and that the commercial bank was “cautious” and “well-run.” “Savers should feel at ease with Fulton,” he added.

Steven Kelly (Steven Kelly), associate director of financial stability program research at the Yale School of Management, said: “In a sense, regulators can shut down a less powerful bank and sell it to a much more stable bank, which should have happened... This helps maintain the value of deposit franchises and thus avoid unrealized losses and bank overcrowding.”